Imagine that the household in our model lives for three periods, t = 1, 2, 3. In period 1, the household starts with financial wealth f1 and labor income y1, which can be used for consumption c1 and saving s1. In period 2, the household uses saving from previous period s1 that earned interest at interest rate R, plus labor income y2. These resources can be used for consumption c2 or saving s2. In period 3, the household uses saving from perivous period s2 that earned interest at interest rate R, plus labor income y3. These resources are used for consumption c3, there is no saving in period 3